Royalty is a tax levied by the government on miners in lieu of transfer of ownership rights of mines. While the government views it as a source of revenue, industrialists look at it as part of production costs. The proposals for the Cabinet approval were based on the recommendations of a study group set up by the UPA government in 2011.
There are 51 minerals prescribed in the second schedule of the MMDR Act, 1957, and the rates differ from mineral to mineral. Almost all minerals including bauxite, limestone, zinc and copper would be affected by the new royalty rates.
While the royalty is collected by the states, the Centre has the power to revise them.
Recently Odisha CM Naveen Patnaik met finance minister Arun Jaitley to seek a drastic hike in the duty on iron ore to 15%. The royalty rate on iron ore stands at 10% and coal at 14%. The Centre had been delaying a decision, as increasing the royalty for coal and iron could potentially push up costs for user industries such as power and steel plants.
Royalty rates for minerals were last increased in 2009 with ad valorem taxes slapped on a number of minerals, including iron, coal, rock phosphate, bauxite and copper. However, some other minerals such as asbestos and limestone attract fixed rates per tonne. The royalty rates for coal and lignite were, however, revised upwards in 2012.